Amazon Betting On Customer Loyalty After Announcing Price Hike

Will Amazon sink or swim? Do you remember when Netflix raised their prices for online video streaming in 2011? That didn’t go over too well with the public. Amazon is betting on better customer loyalty, as they have announced a $20 increase for its popular Prime two-day free shipping and video streaming services.

Amazon Betting On Customer Loyalty After Announcing Price Hike

The mega online retailer claim the risky price hike is a necessity. Raising the price of Prime to $99 a year will offset rising costs to ship products to customers.

Amazon stressed in an email to members Thursday that it has not raised the price on Prime in nine years even though fuel and transportation costs have increased, it’s added new services and the number of products available for two-day shipping has grown to 20 million from 1 million.

The move could please investors at a time when Amazon continues to face pressure to boost its bottom line after years of furious growth. As more Americans shop online, Amazon has spent heavily to expand its business into new areas — from movie streaming to e-readers and groceries — often at the expense of its profit.

Social media was buzzing on Thursday after Amazon announced the price hike. Many Prime users’ comments fell equally on either side of the fence between those who didn’t mind the increase and those who planned to stop using the program:

Nick Begley ordered from Amazon 53 times last year, everything from Curious George books for his toddler to a car phone charger. Begley, 33, says he shops at Amazon more since joining Prime in 2012 and is hooked on the convenience.

“It’s my go-to retail site,” says the resident of Salisbury Mills, N.Y. “$79 was a great price, but $99 is not enough for me to give it up.”

“The intersection of consistency and convenience for these customers has attracted so many people,” Leiser says. “It shaped the expectations of everyone in the industry.”

Cowen & Co. analyst John Blackledge, who estimates there are about 23 million U.S. prime members, says he doesn’t expect the continued growth of Prime members to slow down despite the price increase.

Investors, who along with analysts have been split on whether heavy investment at the expense of profit is the best strategy for Amazon, kept shares nearly flat on Thursday. After rising slightly in the morning, shares slipped 2 cents to $370.62 later in the day. The stock is down 7 percent since the beginning of the year.

“Some investors will continue to voice concern about Amazon’s seemingly endless appetite for investment,” said Citi Investment Research analyst Mark May in a client note. “We, on the other hand, continue to believe these investments make sense of driving long-term growth and greater absolute profits … over time.”

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Will you continue your membership? Will you sign up for a membership? Do you agree this is a necessity by the company or a ploy to get more money? Will Amazon sink or swim?